Ready to go? Am I on? There we go. Thank you, Carlos. Hi, I'm Tom Blakey. Good afternoon, everybody. Welcome back from lunch. We're grateful to have Malcolm Ross, the SVP of Product Strategy here from Appian, and we also have the head of IR, newly appointed, Jack Andrews. Just maybe, you know, for those not well-versed in Appian, and Malcolm, as SVP of Product Strategy, maybe introduce yourself and maybe give us just a brief background on what Appian does.
Sure. Malcolm Ross, I've been with Appian for just under 20 years. I have my degree in Computer Science and Information Science, and been in the software development space since I was, like, 13, like 35 years. But what Appian is, essentially, we're a software platform. We focus on enterprises, large Global 2000s. Specifically, most people know us as being in the low-code, business process automation, and process orchestration marketplace. So we help customers, like big federal agencies, Department of Defense agencies, large financial services, insurance, life sciences, basically build large applications, specifically on mission-critical applications for their business. These often focus around careful coordination, like in the military, doing things like coordination of procurement and resources for military operations, so on big programs, you know.
So why don't we continue that jumping-off point you had mentioned there, Malcolm, about, you know, giving... And you may have just done this, but maybe just extending it in terms of the real, real-life use case. But as an addendum to that, and I think a lot of investor questions that I get, even including our sales force, there's some people here that, you know, ask, "You know, is Appian a software company?" Right? What, what, you know, why, why doesn't somebody-
Yeah.
because I think software, especially to the layperson, just, "Why can't I just go buy that somewhere?
Yeah.
Go buy Salesforce or something. So, you know, maybe just give us a real-world example of, and you know, what has Appian created in the realm of being, you know, a copilot software product?
Yeah, we often think of software as in the modern sense, SaaS. You know, the best way to think of Appian is PaaS, platform as a service.
Okay.
We do deliver our software as a cloud service. Over 70% of our revenue is cloud subscription revenue, I believe, around that.
Yeah.
But what our platform does, of course, is an enabler for other companies to build software solutions. So we're a platform from which they can use low-code design to build end-to-end cross orchestrations. We embed things like robotic process automation, artificial intelligence, business rules, logic, in a low-code sense, which allows them to solve their big challenges. We're building enterprise apps, so.
So is it fair to characterize Appian, kinda, it's a, it's a software platform-
Yeah
—like you just said, but it evolves.
Yeah.
Is that a fair word to use?
Yeah
in terms of evolving with the process?
Absolutely. I mean, we wanna make sure our customers can not only build something today and have that reliable for many years to come, so many of our customers been with us over a decade plus, but as well as their needs change, like AI, like RPA, that they have demands for incorporating these things into their modern business applications, that Appian is a platform that delivers that as well. So if you look at, like, today, we're a delivery conduit for services like AWS Bedrock. We embed Bedrock in our product, which allows them to use these services in the applications they build in Appian.
And maybe, Jack, if I can put you on the spot with regard to the federal vertical. Malcolm mentioned the federal vertical, and I think there was an uptick in the most recent quarter about that. Just, and Appian, for those in the audience, just reported their Q2 last week. Just maybe, kinda maybe wanna focus on what the highlights would be from that quarter from your perspective.
Sure. The highlights were, you know, we beat. In terms of the quarter, we beat on all the key metrics that we guide to. I think the big news from the quarter was that we announced that we're meaningfully accelerating our path to profitability, and we expect to achieve Adjusted EBITDA on a break-even basis for the full year 2024.
Excellent. The other implication, the more difficult question to ask is the implication, the implied guidance is that the cloud subscription business, the cloud-only subscription business was going to decel by my arithmetic anyway, maybe to the mid-teens. Is there, you know, any dynamics from a macro perspective or, you know, any, you know, items that are maybe even one-time in nature? Maybe just kind of highlight what the dynamics are there in terms of what's leading to that decelerated growth or implied decelerate growth.
Yeah, just to be clear that we don't see any. There's no real macro factor in there.
Okay.
You know, we think the macro has been difficult, but that's been the case for a couple of years now in enterprise software, so nothing's really changed on that front. Really, we're taking a slightly prudent approach, given that we made a couple of changes in the go-to-market organization, just to account for any potential disruption that could occur. Just to be clear, we don't see any of that happening today, but we think it is appropriate to build in a little bit of extra prudence, if you will, in terms of the guidance.
Perfectly clear, and you're helping me out here. That was my next question in terms of the organizational, you know, changes. I believe it maybe even would impact up to 150 employees, and that's a relatively meaningful percentage of the employees. Maybe just kind of provide an update in terms of what happened at Appian and what these organizational changes were.
Yeah, so as we talked about on the earnings call, you know, Matt, our CEO, has embedded himself in the sales organization for a number of quarters now, and he—you know, has found a number of action items that Appian could take to basically allow us to continue to be a growth company, but to do that in a more responsible or more efficient manner. And that's really, you know, the key theme. And so what he talked about on the earnings call was moving resources, you know, to areas where the return on investment is much higher-
Okay
... and shying away from the areas where the return on investment is lower and/or less clear. And so that's really the gist of the...
... of the go-to-market changes that you alluded to?
Yeah, that's clear. 'Cause, maybe just double-clicking on the higher ROI, that makes sense from, you know, focusing on fewer assets to maybe, I think, Matt talked about larger deals-
Correct.
It was one of the things. Could you just maybe, you know, double-click on that, and using that as a point maybe to focus on federal, Malcolm, or maybe, you know, what you're seeing in terms of the environment, where you're seeing maybe even a some uptick in terms of demand for Appian?
Well, I'll sort of start off and then let Malcolm address. But at a high level, you know, think Appian can have the greatest impact with the largest and the most sophisticated organizations on the planet. That's where Appian really shines relative to others in the space, and I'll let Malcolm sort of-
Yeah, exactly. If you-
Like the federal government.
Exactly. Especially, you know, with our solution adoptions also in the government acquisition space.
Mm.
We've had great success in the military here in the United States, and expanding also to some other, European countries, Australian countries as well. That said, you know, 70% of our revenue comes from financial services, life sciences, public sector, and insurance. Again, the types of customers that we focus on is really those, again, larger customers in those sets, the Global 2000. Because the solution that we bring forward, although it's low-code, get rapid value, we bring forward a lot of integration capabilities for data fabric or robotic process automation, AI capabilities, which uniquely are designed to address the problems of big organizations who have lots of different systems, lots of different people involved, and complex processes. So that's why we really focus, as far as our go-to-market, on that upmarket aspect as far as these larger institutions having these problems.
You had some strong results, in addition to your accelerated growth last quarter, from peers like ServiceNow. Again, just maybe a bit of a redundant question, but what in the environment could be driving those accelerated results, including, again, for the third time, the uptick in federal was, but which has been a core vertical for a long time? And obviously, the leading question would be: How sustainable are these dynamics?
As far as the macro trend of where our customer buying behavior is?
Yes.
Yeah, I mean, to really understand, I would say, how the market's being impacted across low-code, RPA, iPaaS, I would point to some recent Gartner research around what they call the BOAT market. So they released this about just a few weeks ago, but they're defining a new market category called Business Orchestration and Automation Technologies. The lead analyst there at Gartner is a gentleman by the name of Saikat Ray. And it's very appropriate, I would say, what we see from a macro perspective. First, a consolidation of technology sets.
Mm-hmm.
You've seen ServiceNow, Salesforce, Microsoft, Appian, Pega, vendors in our cohorts, which are basically taking technology which would have been bought individually by customers, such as RPA or AI technology, and making it part of a platform. And from that platform perspective, it's addressing what I would say is a lot of customer buying behavior, which is a reduction of the total technology investments, individual vendors, and trying to go towards platforms which provide avenues for solving multiple challenges at once, rather than isolated task technology. So in our perspective, very beneficial for Appian because we saw this market coming. We never saw RPA as a standalone technology. We always saw it as just part of a larger automation set.
Same thing with AI and other areas, and it's where we see customers turning as well as far as what they want from their vendors, like Appian.
Am I... Not a key question here, but it's probably a good time to interject, where, how the business model works there?
Mm.
'Cause you're not selling these individual functions-
Correct
... you're selling a platform.
You're selling the platform. Exactly.
Driven by processes.
Yes.
Some of the processes.
Yes. If you look at, like, our, just our pricing as far as the business model for that, we have tiers. We have, like, where we bundle these technologies together: Standard, Advanced, premium. And inside of those tiers, there are some usage-based aspects, such as the number of users inside, the amount of AI tokens for generative AI they're gonna be using, or the amount of RPA bots. So there's a little bit of usage-based pricing inside of these large bucket platform pricing. But how Appian goes to market always is platform first, we'll say, as far as the adoption of a larger platform with these integrated technologies.
So you mentioned a lot of competitors there a moment ago. Maybe just illuminate why a customer would choose Appian over, say, you know, a ServiceNow or another automation platform.
Yeah, we focus a lot on, again, on the more complex mission-critical business processes. I think if you trace the lineage of these other vendors, take Microsoft, for example, we see very frequently much more in the office productivity side. So typically more attuned towards the departmental work group type solutions. ServiceNow, their lineage goes down to ITSM, so much more again on the IT kind of service management solution. Appian's lineage has always been on the large mission-critical business applications.
Mm.
If you trace our lineage back to where we got started, we built Army Knowledge Online, Defense Knowledge Online. These were huge collaboration environments for the entire United States military. Our lineage has always been kind of these big mission-critical applications and what we're doing. So, to highlight some of those customers that, like, spoke at our recent conference, Fannie Mae presented at Appian World, the Assistant Deputy Secretary for the Army Supply and Logistics for the United States Military, Axiom Space on their use of Appian, coordinating with NASA for the Artemis lunar mission. So big kind of mission-critical applications.
Okay. I'll stop, pause there for a second. Is there any questions from the audience? No? Okay. I guess maybe let's shift gears to AI.
Mm-hmm.
There was a lot of comments on a recent conference call. You talked about the usage-based potential model. Let's just kinda start there before we get a little deeper into AI. What is Appian offering to the market in terms of an AI solution, and how do you benefit from - how does Appian itself benefit from AI?
Yeah, I look at it, again, from a product strategy perspective as a software developer, and I see, to draw an analogy, AI is more similar to, well, how you should see AI is an attribute of the kernel of the operating system. For those who may be not familiar with the operating system kernel, when I'm a developer, I want to build around a kernel to basically have applications and view it with input, output, the ability to do USB. If we look back at, like, where operating systems were in the 1990s, the concept of networking wasn't really part of an operating system. That was really developed in the 1990s with the new versions of Windows, which released kind of the ability for developers to build applications which are inherently network-aware and network-connected.
If you look at back in 1999, 2000, what was the number one valued company in the world? Cisco, right, as the number one networking company. So networking was really the key capability that was driving interest from software developers that was expanding our ability to build these new, powerful applications.
Hmm.
Long-term winners were not necessarily Cisco, great company, but Amazon, other companies who leverage that network ability were the long-term winners. So going to today, you know, we see AI very similar to this, as, not as an individual technology, but as now a key capability that's going to change the way I build applications entirely inside any application architecture. It's gonna bring forward the ability to do reasoning, multimodal understanding, translation, all these inherent capabilities that then manifest in ways in many, many ways in the application environment. So going to then the Appian context, specifically, what is our operating system kernel? If you look at our press releases back in April, we announced a very important one with Amazon.
We signed a strategic collaboration agreement with them to embed the Bedrock architecture and to collaborate at the engineering level with Amazon on the development of Bedrock, which is a basic conglomeration of Anthropic, AI21, these other AI services inside the Bedrock offering. Bedrock is now kind of the, at the operating system level, the Appian product. We primarily use the Claude 3.5 model, and then we manifest it in many ways. One of those is for developers. How can I, as a developer in the Appian product, how can I accelerate outcomes that they want to achieve? This manifests in many different ways, like natural language, saying, "Describe the application you want.
Mm-hmm.
Scan a PDF, turn it into an interface, automatically create mock data for a data set. It's many, many, many different features that just are these little enhancers for developers-
Yeah
... that get them to the outcome faster. Another way that we're using the AI services is really kind of this revolution in knowledge management. We're all experiencing this right now. If you go to Google today, right, you see the little Gemini AI thing at the top, where if I say, you know, "What is the elevation of Vail?" You know, a year ago, it would link you to the Wikipedia article that you could look it up.
Read it.
Now, it just kind of it reads that for you and gives you the synopsis at the very top. That's being applied to public internet, but there's this need also for doing that inside the context of enterprise data, which is more confidential and secure, but we still want to have that same benefit. So Appian's brought forward a feature we call Enterprise Copilot, which again, does that knowledge scan using the Bedrock architecture with some Elastic semantic search and Elastic, along with some RAG techniques, to allow users to very quickly manifest insights into their business by looking at their confidential, private data. And then the last area we are also investing is what we call AI Skills, because Appian is a platform as a service.
You build applications, and the applications our customers want to build, they want them to have these AI services but in their specific process patterns. So we have a new feature called AI Skills, which allows you to, as a developer in Appian, to train and tune using prompt engineering or retraining AI models, to tune those models for a specific purpose in your business, such as PII extraction, text generation, content generation, and then strategically insert those into the application, so now they're adopting these AI capabilities. So for example, like, very popular in, like, the government contract writing space, one of our customers is Texas Department of Public Safety. They're the purchaser for. They use Appian for purchasing for all law enforcement in the state of Texas. They write many, many contracts, right? These are public contracts.
They can start using AI now to do contract writing and all these other services, strategically place that skill into their applications for in contracts management for the state of Texas, so.
How does... That's very exciting.
Mm-hmm.
How does that impact the model?
The-
The overall Appian business model.
Oh, the business model, not the AI model.
Yeah.
All right. Yeah, so the value that-
I'm talking to an engineer.
Yeah, I would instantly go there. The business model side is really, Appian is always the enabler of these AI services. So again, it's like, do you measure Amazon by the network communication? Well, actually, they sell some services by network communication, AWS, but you don't really think of how they sell books by that. So but it's an enabler of that. We do have specific measures in our pricing on the number of tokens that you get per tier, so there is somewhat of a financial measure. But it's the macro measure for Appian is more around the applications and business process orchestrations you're building on the platform that incorporate AI as a service, if that makes sense.
Yeah, I think it does. The... What about the use of AI internally? A lot of, we have a lot of research, and polls that we conduct, and the market itself does.
Mm-hmm.
One of the number one use cases is coding, right?
Mm-hmm.
There's customer service and security and others. But, you know, given Appian is a, you know, a low-code platform, an RPA platform, a process mining platform-
Mm-hmm
... it would seem that, you could benefit internally from the use of gen AI. Is that, is that-
Yeah, absolutely
... Is that, correct?
You mean internally as our operations?
Internally.
Yeah, I was just showing Jack that, like, an hour ago. We use our own software a lot, we'll say. Almost all of our business operations are running on Appian. And one of those services is our Enterprise Copilot that we use for all of our knowledge sets that we get from analysts. Specifically, I use it for our relationship with Gartner, Forrester, IDC. We take all the institutional knowledge of the Appian information we've shared with analysts and then provide a Generative AI prompt experience for anyone, like Jack here, to come in and ask a question-
Yeah
... and, get answers really quick.
I was unable to break it.
Yeah.
Unable to break it. Is this part of the enhanced profitability, Jack or Malcolm, in terms of, like, maybe improving the efficiency of your coders?
Well, there are certainly efficiencies of coders. The enhanced profitability is largely around a focus go-to-market-
Got it.
- to make sure that... Yeah, exactly what Jack said. But there are lots of things we're doing internally as well around efficiency, that use certainly AI in our own software.
Some of your competitors are talking about improving the speed to market with design of a process.
Yeah.
Is that something that Appian is doing?
Absolutely. As far as using AI in the for the developers on the Appian platform.
Mm-hmm.
That's, yeah, been a part of our products. We started introducing these AI-driven design features in August last year, and then continuously enhanced those over time. We have did some previews of what we're about to release in our Appian World Conference in April, and then you'll see some stuff even more come out around the end of this year and into early next year. Yeah.
So, and using that maybe as a jumping-off point back to competitors, has there been any change in the competitive landscape in the last, say, six months?
We'll s-
Or more?
I mean, the biggest change has been, I would say, the continued consumer behavior on platforms and, you know, what Gartner calls BOAT. So you can look at Appian's competitors as a broad brush. You know, we have the other platform vendors, like, we'll say ServiceNow, Pega, Salesforce, Microsoft. We have lots of bespoke, specific automation technologies, RPA, UiPath, Automation Anywhere, things like that.
Mm-hmm.
You have also solutions, like in the government acquisition manager side, Unison, right? So they're on the GAM side as far as the package solution. So to talk about those, kind of at those task automation platform, we see consumer behavior trending away from isolated automation technologies towards platform technologies. So increased competitiveness in that platform space, we'll say. And then on the solution side, it's a little too bespoke. We've had a lot of success in the government acquisition side, but, it's a little different based on each specific solution category, we'll say. Yeah.
Is part of the go-to-market changes that were made recently to focus on the solutions?
Solutions, as well as target industries where we know we can provide the most value for our customers. The greatest example, again, is if a customer does not have a problem that incorporates integrating many different systems into our Data Fabric or using RPA or using AI for automation, they're not a good customer for Appian. Often these are more small, medium businesses or small departmental or work group projects. What's better for Appian is large programs that have complexity and integration, complexity in the business outcomes, that you want to achieve. Yeah.
There's been some comments from Appian recently about creating new tiers. You mentioned tiers about-
Yeah
- 5, 10 minutes ago. Can you maybe talk about this, this highest tier, and what's included in it, and what kind of pricing upside that we can expect, you know, on a like-for-like basis from Appian?
Yeah, we have a three tiers: standard, advanced, premium. Advanced is where most of our customers line up, and what that tiering strategy allows us to do is really bundle in all those services together into those tiers. So as you mentioned, you know, we bring process mining, RPA, AI, all these capabilities, and we really want to encourage our customers to look at the plat- the product as a platform that combines these. We don't want you adopting RPA bespokely or business rules bespokely as individual services. So the tiering encourages the bundle, and delivery strategy, as well as allows us to uplift additional services on top of that as we kind of encourage adoption across HQ and other services.
Now talk to what kind of price enhancement that could... That moving folks from, say, the advanced to the premium?
It would be variable based on their existing license, so I wouldn't say there was a-. I'm not sure if-
No general
I'll provide any guidance or-
Yeah, the only thing we, you know, it was just announced a few months ago, and so you think about the typical Appian sales cycle time, as well as, you know, going through the customer base. So it's too early to sort of provide any modeling points, if you will, on potential impact.
That's helpful. And then maybe finally, I think we're coming up on time, but just when I look at Appian, I think it's relatively unique, more software than professional services relative to some of your peers. Can you just maybe talk about, you know, why that is? And, you know, how should we think about the significance of the services organization within Appian?
Yeah, it really goes to that market and the solution that we're selling into around the complex business challenges, which demands this more larger services engagement side, and also managed services. 'Cause we're not providing software to customers and saying, "Good luck.
Mm-hmm.
We're providing a platform that requires solving complex challenges. These often extend also beyond just technology challenges, but they're business strategy challenges. They're really complex challenges, how they're gonna transform the business. So it's why we look at that services mix as an important mix to keep as part of our business as far as having that high-level engagement with the services to ensure the successful outcomes of our customers. Now, that said, you know, partners are the primary delivery of all services of the Appian product globally, I would say. Anything to add there, Jack?
Yeah. I was gonna say, well, you know, just as an adjunct to that, maybe extend that in terms of the partner expansion. I think you started two Appian Worlds ago, and what's, you know, what are the enticements for why an SI or a GSI would wanna work with Appian?
Well, I think the, what we're trying to do in the spirit of, again, growing more efficiently, is focusing on a smaller number of partners where they understand the value proposition of Appian better, and we can help incent them to help us and drive business and drive relationships for us. So that's kind of the key focus of basically doing more with fewer partners in order to drive efficient growth is sort of the summary of what's happening on the partner front.
And that's included in the improved go-to-market as well?
I'm not sure what you mean by that.
Leveraging partners in terms of go-to-market.
Correct, yes.
Yes. Okay, well, if there's no questions, I think we're out of time?